Paying for a child’s college education can be stressful, but a little planning ahead of time can save you a lot of money in the long run. The Princeton Review offers five quick financial tips for what you can do now to prepare for the cost.
1. Start saving early, ideally when your child is a newborn. The more time you give your investments to multiply, the better. Even if you can manage only a small amount each month, you’ll be better off than doing nothing.
2. Invest wisely. Look into 529 accounts. These investment accounts offered by 49 states (and the District of Columbia) accrue earnings that are tax-deferred. Withdrawals made for qualified education expenses can be exempt from federal taxes — and often state taxes as well. Types of accounts, investment options, and fees vary. Check first into your home state’s 529 plan, as there may be other benefits to state residents.
3. If you have any hope of getting need-based financial aid, never put money in your child’s name. Under the current aid formulas, money in the student’s name — including custodial accounts and trust funds — can reduce aid eligibility by up to 25 cents on the dollar compared to up to 5.64% if those same funds are in a parent’s name. Be aware that funds in 529 plans owned by a parent for the benefit of the child are considered parental assets.
4. There is a huge difference between simply applying for aid and applying so that you get maximum assistance. Learn how the aid award process works and how aid eligibility is determined. Legal adjustments to your income, savings, and other assets, as well some debts and certain types of expenses, can save you thousands of dollars. Since income received as early as January 1 of the 10th grade in high school can affect aid for the freshman year of college, it is not too soon to begin your aid planning when the student is in 9th grade.
5. Remember to save for your own retirement. There are loans to pay for college, but you can’t borrow for retirement.
From The Princeton Review book Paying For College Without Going Broke